The Zen of Jeff Bezos

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The Zen of Jeff Bezos

Jeff Bezoscredit David Ash

When Jeff Bezos was launching Amazon.com a decade ago, conventional wisdom held that 300,000 titles would be plenty; the largest physical bookstores couldn't sell enough volumes to justify half that inventory. Bezos took what he calls "the bold, stupid path" and stocked his shelves with a million titles. Smart move: It turned out that early word of mouth came from people looking for more obscure volumes. These days, the site sells more than 20 million products, including all 29 colors of the KitchenAid 5-quart mixer. And it's a $6 billion business, thanks to its focus on niche markets and customer service. Wired caught up with Bezos at Manhattan's 92nd Street Y.

WIRED: Does Amazon actually create demand for hard-to-find products?BEZOS: Absolutely. We not only help readers find books, we also help books find readers, with personalized recommendations based on the patterns we see. I remember one of the first times this struck me. The main book on the page was on Zen. There were other suggestions for Zen books, and in the middle of those was a book on how to have a clutter-free desk. That's not something that a human editor would have ever picked. But statistically, the people who were interested in the Zen books also wanted clutter-free desks. The computer is blind to the fact that these things are dissimilar in some way that's important to humans. It looks right through that and says yes, try this. And it works.

How does this compare with the approach taken by other retailers?If you think about the marketing of products, it's easy to see polar extremes. At one end you have Super Bowl ads selling Coca-Cola or Budweiser; at the other, you have a sales force pushing an expensive product to 500 companies. What's difficult to sell is the "hard middle" - marketing an inexpensive product, where the gross profit per sale is low, to a small group. A very successful, profitable, midlist book might sell 15,000 copies. In the old world, finding the right 15,000 people to buy that book was ridiculously expensive. This is something that Amazon.com and the Internet in general have really helped with.

Does Amazon sell mostly hits, or are sales distributed more evenly between hits and obscure titles?Relative to the industry as a whole, we're disproportionately weighted toward harder-to-find titles. People sometimes confuse obscurity with bad quality.

You launched Search Inside the Book about a year ago. What have been the main effects?If you went into a physical bookstore, and all the books were shrink-wrapped shut, would you sell more that way? Probably not. But for the first eight years, that's what Amazon.com was. Now there are hundreds of thousands of books [that can be full-text searched]. Sales of those books are up 9 percent relative to others. We wondered about things like cookbooks and reference titles - would people just take the snippet they need and not buy the book? In fact, by letting people search inside, sales of these types of books have gone up more than average.

How much of retail sales do you think eventually will be online, and how much offline?I think online ultimately will be 10 to 15 percent of retail. The vast majority of retailing will stay in the physical world because people have acute needs, they want things now. Also, there are products, like a yard rake, where the economics of delivery don't make sense. But a 600-pound table saw is a great item to sell online because it always gets delivered. And it's expensive enough that there is enough profit in it to cover the cost of shipping. Plasma TVs, same idea.

Do physical bookstores have anything to offer that Amazon doesn't?One thing is face-to-face meetings with authors. And what Howard Schultz at Starbucks likes to call a third place, where people go and sit and spend time. We humans are a gregarious species; we like to mingle with other humans.

Will physical bookstores ever do print-on-demand?That's a possibility, but I think that's a pretty small part of what would happen there. Print-on-demand actually plays more to the strengths of the online world. We already have many in our catalog, but it's invisible to you, the customer. We use a number of companies that do the actual printing, but we mail them like regular books. They look like regular trade paperbacks.

How about music? Is there a place for a Tower Records in the future?Well, it's difficult to see how physical stores participate in the digital distribution of music. Today most music is sold by multi-category retailers who are cutting back on the square footage they deploy to music.

What about videos? Netflix says it believes you're going to enter their rental-by-mail business.Our policy is not to preannounce what we might do. But that is a business we know something about. One of the big costs here is that an extremely large fraction of those monthly subscription fees are used to acquire new customers. Amazon is well positioned to offer a low-priced service of high quality, and we wouldn't have to pay heavy marketing fees.

In fact, this is a general thing that we've done that has been very helpful to our business. About three years ago we stopped doing television advertising. We did a 15-month-long test of TV advertising in two markets - Portland, Oregon, and Minneapolis - to see how much it drove our sales. And it worked, but not as much as the kind of price elasticity we knew we could get from taking those ad dollars and giving them back to consumers. So we put all that money into lower product prices and free shipping. That has significantly accelerated the growth of our business.

Is this a trend?Yes, more and more money will go into making a great customer experience, and less will go into shouting about the service. Word of mouth is becoming more powerful. If you offer a great service, people find out.

In the magazine world, we rely on ads. Should we be terrified?I'm not saying that advertising is going away. But the balance is shifting. If today the successful recipe is to put 70 percent of your energy into shouting about your service and 30 percent into making it great, over the next 20 years I think that's going to invert.